740.22112 RP/8–345

The Secretary of State to the Ambassador in Ecuador ( Scotten )

No. 1242

The Secretary of State refers to the Embassy’s telegram no. 598 of August 3 requesting the Department’s views concerning possible changes to be made in the Regulatory Decree of July 11 relating to the modification of action taken under the 1943 vesting and forced sale decrees of the Ecuadoran Government.

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Background

The basic decree under which transfers of Ecuadoran property have been effected is no. 854 of June 11, 1943. Article I of this Decree authorizes the Minister of Finance to vest, liquidate or transfer properties belonging to Axis nationals or Proclaimed List nationals and persons assisting the Axis war effort.

Regulatory Decree no. 380, dated July 28, 1943, created, in the Ministry of Finance, a Commission called “Control of Blocked Properties”, the Director General of which is given the powers specified in Decree 854. Article XII of this Regulatory Decree authorizes the Director General, after a proceeding to evaluate the assets, “to determine the manner of transferring ownership”, to call for bids and to determine, with the Minister of Finance, the persons to whom the sale shall be made. Article XIII provides that the Minister of Finance, by virtue of Decree 854, “has the power to give a valid and legal title to the concessionaire and the Registrar of Property shall be required to inscribe it as such.”

While the 1943 Decree no. 854 authorizes either a vesting (expropriation) procedure or a forced transfer procedure, it would appear from the 1943 Regulatory Decree no. 380 that the latter procedure was followed; namely, that the state did not take a full title and thereafter transfer it to the satisfactory purchaser but, instead, forced the transfer from the pro-Axis owner directly to the satisfactory purchaser. It is understood that in practice, these transfers were in some cases made by deeds from the pro-Axis owners to Ecuadoran citizens and that in some cases the satisfactory purchasers took their title from the Minister of Finance acting for the former owner.

The next decree is the one of March 2, 1945. It declares that all transfers of real and industrial properties effected under the 1943 procedure are “null and void” except that the transfers which had been made to public and quasi-public Ecuadoran agencies are confirmed unless such agencies request that the transfer be annulled. This decree adds that the “transfers which are annulled will return to the power of the state” and says that the permanent legislative committee, in agreement with the Executive, may deal with the properties in question one of three ways: (a) they may “hold the properties for the state”; (b) they may arrange for them to be sold at public auction; (c) they may deal with them in any of the ways described in Washington Resolution VII86 (i.e. forced transfer, total liquidation, blocking or intervention). The only exception to the foregoing [Page 1041] is that Ecuadoran citizens (either by birth or by naturalization prior to September 1, 1938) shall immediately regain their properties unless they have demonstrated in any way retention …87 of foreign nationality before or after the blocking”.

The next and last Decree is one of July 11 which attempts to specify procedure for implementing the March 2, 1945 Decree.

In respect of the present state of the title to the properties in question, this Decree provides that the “present [satisfactory]88 grantees will be considered owners in good faith until March 2, 1945, and from then on, in the absence of proof to the contrary, until the duly executed resolution”. This provision, considered in connection with the provision that the resolutions of the permanent legislative committee “will not have any legal effect nor serve as a sufficient title to property until the date of their inscription in the appropriate property register”, are construed to mean that the titles transferred under the 1943 procedure are not effected unless and until the necessary steps defined in this Decree are taken.

Various types of cases are to be handled in various ways:

1)
Real and industrial properties which have been transferred to public and quasi-public agencies of the Ecuadoran Government are to be returned only if the agency in interest affirmatively indicates that it no longer desires the property; in which event orders will be issued “in harmony with the provisions of this decree”.
2)
In respect of properties which have been transferred to private individuals and concerns, a list of such properties is to be compiled and submitted to the President who shall indicate which properties, if any, he considers should “pass to the ownership of the state”. With the exception of properties described in the next succeeding paragraph, the remaining procedures are understood to refer solely to properties which the state elects not to acquire.
3)
Properties taken from native born Ecuadorans or from Ecuadoran citizens naturalized prior to September 1, 1938 are to be returned to their former owners; except that property which the state has already acquired is to be retained by the state at its option.
4)
In respect of the remaining properties (i.e. those other than properties which the state already owns, properties which the Executive may elect to acquire for the state, and properties taken from Ecuadoran citizens) the Legislative Commission may apply any of the following measures:
a)
sell at public auction
b)
forced sale
c)
total liquidation
d)
blocking
e)
occupation
f)
intervention

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Measures d), e) and f) may be applied concurrently with the return of these properties to their former owners.

The Decree specifies the following categories to which one or more of these measures may be applied, namely:

a)
Property formerly belonging to Japanese nationals currently included in the Proclaimed or Statutory Lists will either be ordered to be totally liquidated or the sale of the Japanese interests will be forced.
b)
Property formerly belonging to “foreigners” currently included in the Proclaimed or Statutory Lists will be liquidated, sold, occupied, administered or temporarily left for the present grantees to administer, as the legislative committee may desire.
c)
Property formerly belonging to “foreigners” who resided in Ecuador prior to January 1, 1936 “with evident good conduct” whose names are currently included in the Proclaimed or Statutory Lists may be transferred to the administration and ownership of their former proprietors under the control of an interventor.

The foregoing summary is limited to the provisions which seem to control the issue with which the Department is most concerned; namely, the possibility that unsatisfactory owners may recover the property which has been taken from them under the 1943 procedure. No effort has been made to summarize provisions relating to compensation due the former unsatisfactory owners or to the present grantees, procedure provisions, and other provisions which only incidentally bear on the property question. Since this summary has been made rather quickly it will be appreciated if the Embassy will indicate in what respects it may not be accurate.

General Considerations

The two 1945 Decrees are objectionable in principle for the reason that they reopen the entire question of formulating a list of persons whose properties should be subjected to vesting, forced sale, or liquidation; a question which was decided by the previous administration in consultation with the American and British Embassies. The principal objection to these decrees is that they evidence a tendency to undo everything which has been accomplished in the Replacement Program and threaten to reinstall unsatisfactory owners in their former positions. The Officer in Charge will, therefore, doubtless wish to point out to the Ecuadorans this Government’s concern regarding the whole tenor and effect of both of the 1945 Decrees.

If the entire question must be reopened—and it is apparent that such is the intention of the Ecuadorans—the question is the narrow one of whether the previous administration erroneously deprived the persons in question of their properties. This must be determined on a case [Page 1043] by case basis. The standards by which each case is to be tested are set out in Resolution V of the Washington Conference, which was adopted in conformity with Resolution V of the Rio Conference, and which was recently reaffirmed at Mexico City in Resolution XVIII.89 This Article states:

“The Inter-American Conference on Systems of Economic and Financial Control

Recommends:

  • “1. That the application of the economic and financial controls of the Governments of the American Republics, during the present emergency, should have as one of its objectives the control of the property and transactions of all persons, real or juridical, residing or situated within their respective jurisdictions, regardless of nationality, who by their conduct are known to be, or to have been, engaging in activities inimical to the security of the Western Hemisphere.
  • “2. That each of the Governments of the American Republics, through the application of its economic and financial controls, eliminate from the economic life of the respective country all undesirable influence and activity of those persons, real or juridical, residing or situated within the American Republics, who are known to be, or to have been, engaging in activities inimical to the security of the Western Hemisphere” (underlining added)90

The construction which has by common consent been placed on this and similar resolutions is that the elimination of undesirable individuals and concerns from the economic life of an American Republic requires something more than intervention, occupation or administration. To eliminate permanently their influence and activities it is necessary to vest, liquidate or force the sale of their properties and to insure that they shall not regain their titles.

The key-words are “engaging in activities inimical to the security of the Western Hemisphere”; that is to say, in each case the test should be, not one of nationality, but whether the individual in question comes within the terms of the resolution which is quoted above.

In determining whether or not in a given case the former owner is entitled to the return of his property, it is most important that the Ecuadoran Government consult with the Embassy prior to taking definitive action. Such a prior consultation would enable the Embassy to make available to the Ecuadoran authorities evidence which may be pertinent to a proper determination of the case, including evidence which is now available in Germany and which is beginning to reach the Department in considerable volume. Such consultation is clearly [Page 1044] contemplated in Resolution VIII of the Washington Conference and in Mexico City Resolution XVIII.

It is pertinent to observe that mass deletions have been made in the Proclaimed List for Ecuador not because deletion was merited by the cases but because of wartime controls which had been put into effect by the Ecuadoran Government; and particularly because of the action which had been taken to effect what then seemed to be a permanent and irrevocable separation of certain undesirable owners from their property. If a substantial portion of these properties are now returned to their former owners the whole basis for the reduction of the list in Ecuador will have disappeared and a reconsideration of the entire question will be necessary. These remarks are particularly pertinent to the provisions in the decree referring to persons who are “currently included in the Proclaimed List”—the inference being that deletions have been made on the basis of merit.

Specific Provisions

[Here follow specific comments on various articles of the Decree of July 11, 1945.]

  1. For text, see Pan American Union, Congress and Conference Series No. 40: Proceedings of the Inter-American Conference on Systems of Economic and Financial Control (Washington, 1942), p. 155.
  2. Omission indicated in the original instruction
  3. Brackets appear in the original.
  4. Pan American Union, Final Act of the Inter-American Conference on Problems of War and Peace, Mexico City, February–March, 1945, pp. 55–67.
  5. Printed in italics.